A New ESG ETF Arrives And It's Cheap

Environmental, social and governance (ESG) exchange-traded funds continue sprouting up. An easy way for new entrants to this increasingly crowded field to make an impression on an investor is with low fees.

What Happened: The SPDR S&P 500 ESG ETF EFIV, which debuted Tuesday, accomplishes the goal of cost-effective ESG exposure. With an annual fee of 0.10%, the new SPDR fund is one of the least expensive funds in this category. EFIV follows the S&P 500 ESG Index, the ESG carve out of the benchmark domestic equity gauge.

“ESG investing is approaching a critical inflection point. The collective call for change is growing louder and investors are increasingly taking a stand through their investment choices,” said Sue Thompson, Head of SPDR Americas Distribution at State Street Global Advisors, in a statement.

“EFIV meets growing demand for cost effective solutions that help put ESG investing into action by offering investors an ETF that seeks to track a more sustainable version of one of the most renowned benchmarks in the world. As ESG factor-based strategies pivot from check the box components to must have ingredients in every portfolio, State Street remains committed to providing a broader range of ESG solutions.”

Why It's Important: Like many of its peers in the category, the new EFIV eschews companies with tobacco exposure, nuclear power producers and weapons manufacturers, among other industries that are ESG offenders. Other companies that are left off the roster are those with a United Nations Global Compact (UNGC) score in the bottom 5% of all UNGC-scored companies globally,” according to State Street.

While EFIV is an index-based strategy, the S&P 500 ESG Index can and does add or delete names based on ESG scoring.

The new ETF is home to 310 stocks and like others in this category, EFIV features a healthy technology weight. That sector accounts for over 28% of the fund's weight with Microsoft MSFT and Apple AAPL combining for 15%. That's more than the 11.54% those stocks combine for in the S&P 500.

What's Next: EFIV could be a well-timed ETF launch because data confirm advisors and investors are pouring into ESG products this year.

ESG “ETFs and ETPs listed globally gathered net inflows of US$3.49 billion during June, bringing year-to-date net inflows to US$32.02 billion which is significantly more than the US$9.86 billion gathered at this point last year.  Assets invested in ESG ETFs and ETPs increased by 7.3% from US$82 billion at the end of May 2020 to reach US$88 billion a new record at the end of June,” according to ETFGI.